Question

How should the airline respond when presented with an overweight bag (more than 42 pounds)?

Explain whether or not each of the following should be considered a variable cost that increases with each additional airline seat sale: baggage costs, crew costs, commissions on ticket sales, airport parking costs, food costs, and additional fuel costs from passenger weight.

If jet fuel prices reverse their upward trend and begin to decline, fuel surcharges based on average variable cost will catch up with and surpass marginal costs. How should the airlines respond then?

Answer 1

            The given case talks about the situation where an airline is being presented with an overweighed bag. The airline has to consider various effects before taking the final decision on what tod do with the condition that is being presented above. The following are the various factors and how the airline should respond to each of them

· Each airline has a set of rules and regulations and it caps the weights each traveller can carry with due considerations on the managerial economics behind them.

· Variable cost: It is a cost that varies with additional costs and in the given case, the additional cost that has to be incurred for additional baggage would result in losses to the airlines

· The crew has to be provided with salaries and hence the airlines could not avoid the traveller due to the reason of additional baggage and hence the traveller may be advised to reduce the baggage to the maximum limit and allowed to travel

· The traveller may consume food and this would add to the revenue of the airlines and hence it is necessary for the airlines to settle the issue and allow the traveller to continue the journey.

· If not allowed to travel, the airlines would lose the revenue from a seat and thus the additional costs would have to be incurred with lower revenue

The next situation is where the fuel prices are lower. The following actions could be taken by the airlines in such situations

· With lower fuel costs, the airlines may increase the maximum baggage weight in accordance with the total weight that the air service can hold

· In such a case, it is given that the variable cost has the ability to surpass the marginal costs and hence the airline has the option to allow ease on the profits and hence could relax their rules so as to accommodate additional benefits.